Las Vegas Sands Corp. — 2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. The filing also provides unaudited fourth-quarter results. Las Vegas Sands develops and operates integrated resorts in Macao, Singapore and the United States, combining gaming with hotels, retail, dining, entertainment and convention facilities. Its 70.2%-owned Sands China subsidiary operates its Macao properties.
Financial performance and condition
- 2013 revenue: Net revenue was $13.77 billion, up 23.7% from $11.13 billion in 2012. Casino revenue rose 26.4% to $11.39 billion; rooms revenue rose 19.6% to $1.38 billion; mall revenue rose 21.3% to $481.4 million. Sands Cotai Central’s progressive opening was the principal growth driver, alongside higher gaming revenue at The Venetian Macao.
- Profitability: Operating income was $3.41 billion, up 47.5%; net income was $2.95 billion, up 57.0%; and net income attributable to Las Vegas Sands was $2.31 billion, up 51.3%. Diluted EPS was $2.79 versus $1.85. Operating margin increased to 24.8% from 20.8%; net margin increased to 21.5% from 16.9%.
- Property performance: Adjusted property EBITDA, a non-GAAP management measure, increased 25.6% to $4.76 billion. Macao contributed $2.90 billion, Marina Bay Sands $1.38 billion, and U.S. properties $475.1 million. Sands Cotai Central EBITDA increased to $739.7 million from $213.5 million as additional towers and facilities opened.
- Fourth quarter: Net revenue was $3.66 billion, operating income $886.1 million, net income $769.7 million, and income attributable to Las Vegas Sands $577.5 million. Compared with Q4 2012, these increased approximately 18.8%, 31.9%, 34.8% and 32.8%, respectively. Diluted EPS was $0.70 versus $0.53.
- Cash flow and investment: Operating cash flow was $4.44 billion, up from $3.06 billion. Capital expenditures were $898.1 million, producing operating cash flow less capital expenditures of approximately $3.54 billion. Investing activities used $912.2 million. Financing activities used $2.43 billion, including $1.56 billion of dividends and $561.2 million of share repurchases.
- Debt and liquidity: At year-end, cash and cash equivalents were $3.60 billion, current assets $5.52 billion and current liabilities $3.13 billion. Long-term debt was $9.38 billion, excluding $377.5 million of current maturities; total debt carrying value was approximately $9.76 billion. The company reported $1.54 billion of borrowing capacity under its U.S., Macao and Singapore facilities, net of letters of credit. Credit-facility leverage ratios were 1.2x for the U.S., 1.1x for Macao and 2.9x for Singapore, below their respective covenant limits at year-end.
- Other metrics: The effective tax rate was 6.0%, reflecting, among other factors, a Macao gaming-profit tax exemption extended through 2018. The company paid $1.40 per common share in regular dividends during 2013. It paid a $0.35 quarterly dividend in Q4.
Material changes versus prior periods
- Net revenue grew 23.7% in 2013, following 18.3% growth in 2012. The 2013 increase was led by Sands Cotai Central, which generated $2.70 billion of net revenue versus $1.05 billion in 2012, and by higher revenue at The Venetian Macao.
- Operating income and attributable net income rebounded strongly in 2013. In 2012, operating results included $143.7 million of impairment charges, primarily related to a discontinued Cotai development and termination of the ZAiA show; no impairment loss was recorded in 2013.
- Operating cash flow increased by $1.38 billion year over year, while capital expenditures declined from $1.45 billion to $898.1 million as major Sands Cotai Central construction phases were completed.
- Debt declined from $10.13 billion in long-term debt at the end of 2012 to $9.38 billion at the end of 2013, excluding current maturities. The company refinanced its U.S. facility in December 2013.
- The 2013 regular dividend was $1.40 per share, compared with $3.75 in 2012, which included a $2.75 special dividend. The board declared a $0.50 quarterly dividend in January 2014 and said it expected that level to continue through 2014, subject to ongoing review.
Outlook, risks and unusual items
- Projects and outlook: The Parisian Macao was expected to open in late 2015, with estimated total development cost of approximately $2.7 billion, including land premium. The remaining Sands Cotai Central phase was expected to cost approximately $700 million. The company had applied to extend the May 2014 completion deadline for Sands Cotai Central; loss of the land concession could put up to $4.15 billion of capitalized costs at risk. The Parisian’s land-concession deadline was April 2016, with extensions not assured. The Las Vegas condominium project remained suspended, with $178.6 million of capitalized costs; the company said future cost to complete was not determinable with certainty. The filing gives no clear consolidated revenue or earnings guidance.
- Financing: The company was pursuing an amendment to its Macao credit facility to extend term-loan maturities to 2020 and add $2.0 billion in revolving commitments. Completion was subject to lender and Macao government approvals. The filing also cautions that debt covenants restrict operations and that substantial subsidiary cash is subject to distribution limitations.
- Legal and regulatory matters: In 2013, the company agreed to return $47.4 million to the U.S. Treasury in connection with a U.S. Attorney’s Office matter involving funds from a customer; it paid the amount and reported the matter closed. A Nevada jury verdict in the Suen litigation resulted in a $101.6 million judgment, which the company appealed and for which it recorded no reserve, stating it did not consider loss probable or estimable. SEC and DOJ FCPA investigations remained ongoing; the Audit Committee had reported preliminary findings of likely books-and-records and internal-controls violations, while concluding these did not warrant restatement or constitute a material weakness in financial reporting controls. Management could not estimate potential loss for these matters.
- Cybersecurity: The company disclosed a sophisticated cyberattack. It reported that customer and employee data at Sands Bethlehem had been compromised and other data may have been stolen or destroyed. Investigations were ongoing, and the company could not estimate potential losses.
- Key business risks: Results depend heavily on Macao, Singapore and Las Vegas, and are exposed to gaming volatility, customer credit and collection risk, reliance on junket operators in Macao, travel and economic conditions, competition, regulation and licensing, foreign exchange and interest rates, construction costs and deadlines, and the enforceability and duration of gaming concessions. The Macao concession expires in 2022; the government may redeem it beginning in 2017. The dividend-tax substitution agreement in Macao expired at the end of 2013, and renewal through 2018 had been requested but was not assured.
- Other unusual item: 2013 general and administrative expenses included a $47.4 million legal settlement expense. Debt refinancing generated a $14.2 million loss on modification or early retirement. The 2012 comparison included the $143.7 million impairment charge noted above.
Important facts for investors to verify
- Whether the Macao credit-facility amendment closed on the expected terms, and how upcoming debt maturities and covenant thresholds affect financial flexibility.
- Progress and final costs for Sands Cotai Central and The Parisian, including status of deadline extensions and the potential recoverability of capitalized project costs.
- Developments, financial exposure and disclosure updates regarding the FCPA investigations, Suen appeal, other litigation and the cyberattack.
- Cash availability at the parent level, subsidiary distribution restrictions, and the sustainability of the announced $0.50 quarterly dividend alongside development spending and buybacks.
- Gaming-revenue trends and credit collection, especially the contribution of Macao growth and the impact of casino win-rate volatility.
- The effect of the Macao gaming-tax exemption and the unrenewed dividend-tax substitution arrangement on future taxes and cash flows.